Companies look for more fairness as China eyes legal reforms at key meeting

BEIJING (Reuters) – China is set to unveil key legal reforms this week that will try to limit the influence local officials have on court cases, a move being closely watched by company executives who hope it will make the legal system more impartial.

The announcement is expected at the end of an Oct 20-23 meeting of the ruling Communist Party elite, which has made the “rule of law” the theme of the gathering. The meeting, called a plenum, comes at a time when slowing economic growth in the world’s second-largest economy is raising the prospect of more commercial disputes.

The business community, in particular Chinese private firms and foreign investors, have long complained about the difficulty of getting a fair hearing in court because judges usually answer to local governments and party organs, which often have their own interests to protect.

Chinese media has recently carried reports on local companies suing each other when a dispute arises, with the parties lodging separate cases in courts in their home provinces, which then inevitably find for the home firm.

In April, Knowles Corp, a New York-listed maker of advanced micro-acoustic products, said its lawyers had been blocked by a provincial court from attending a patent infringement case involving Chinese group GoerTek.

China’s President Xi Jinping (R) shakes hands with South Korea’s ruling Saenuri Party leader Kim Moo-sung during their meeting at the Great Hall of the People in Beijing, October 14, 2014

Ahead of the plenum, a meeting of the roughly 370-member Central Committee that usually takes place annually, state media has noted that the key goals are to temper the influence of local governments in courts and to make judges more professional and not tools of the party.

This would involve “reforming the judicial system to prevent local officials from interfering in court decisions”, a source with knowledge of the plenum agenda told Reuters on condition of anonymity.

However, while the party may be seeking to limit the influence of officials on courts, there is no suggestion China is about to set up an independent judiciary, and for sensitive cases, such as high-level corruption or for prominent dissidents, the party will remain firmly in charge.

While the legal reforms are also aimed at quelling some of the roots of China’s growing unrest by giving people a sense of fairness in the justice system, there is a strong economic rationale for the measures.

Writing in the party’s official People’s Daily newspaper last Wednesday, Li Shuguang, a professor at the China University of Political Science and Law, said there could be no economic growth without a sound legal system.

“Protecting intellectual property and contracts are the preconditions for economic development and growth,” Li wrote, adding that the current system was “not working properly” as it gave the government too much scope to abuse its power.

“For healthy future economic growth, the rule of law will play an even more important role in China’s market economy.”

When drawing up contracts, many foreign companies seek to include clauses to enable arbitration in places such as Hong Kong in the event of a dispute.

At the party’s last plenum in November, President Xi Jinping announced ambitious economic reforms that signalled a shift in China’s economy from infrastructure- and export-fuelled growth towards a slower, more balanced and sustained expansion.

The government has since carried out a handful of economic reforms, although some critics argue that implementation has not been fast enough.

“They have recognised that without improved rule of law, economic reforms they want to deliver will not succeed,” said a Beijing-based European envoy.

James Zimmerman, managing partner of the Beijing office of law firm Sheppard Mullin and a former chairman of the American Chamber of Commerce China, said removing the influence of the party on court cases was vital.